The Love of Socialism

In a country that is both democratic and socialistic, we might suspect that crafty politicians will run for office by promising more and more free stuff.

A writer for the Daily Caller reminds us of what he calls socialism’s successes. The Soviet Union, he says, made solid economic progress; and, China has achieved a higher standard of living than India. Why doesn’t he also point out that slave-owners in the south did better than free men in the north?

First, it isn’t clear how to value any achievement of a communist or slave-based economy. How do you “add up” the positives, such as the trans-Siberian railroad, against the negatives, of millions of people worked to death in the prison camps of the Gulag, and the tens of millions of people starved to death in Ukraine and elsewhere? In a market-oriented economy, cost is revealed by willing sellers of labor and raw materials. If work is dangerous or has other disagreeable features, employers must offer higher wages. But, can slaves or convict laborers balk at dangerous or otherwise disagreeable work?

Paying workers less than market wages is one manifestation of the doctrine of “forced savings.” Curiously, left-of-center economists either argue that capitalism results in too little savings (for which the answer is forced savings) or that capitalism results in too little spending (for which the answer is fiscal stimulus). After all, what are odds the market would get this right without the help of really smart, left-of-center economists?

A writer who talks of the achievements of socialism without considering the unaccounted cost of forced savings would probably not be much concerned with the sale of slaves to Russia and other countries by North Korea, the forced labor of Cuban health professionals sent overseas, or the harvesting of organs from executed criminals in China. As the old saying goes, you can’t make an omelet without breaking eggs.

Now, as to the achievements of the Soviet Union, during the 1920s, V.I. Lenin quickly shifted from a doctrinaire form of socialism to a more pragmatic form. Following World War II, similarly, the Soviet Union featured something of a mixed system. Indeed, Mikhail Gorbachev thought he could re-calibrate the mix, introducing “openness” and other reforms into the system, but wasn’t able to do so at the time of the collapse.

The Daily Caller says nobody thought the Soviet Union would catch-up to the U.S., but he doesn’t know what he’s talking about. Nikita Krushchev several times said “We will bury you,” meaning with a higher standard of living. The most famous time he said this was before the U.N. General Assembly In 1959. A left-wing journalist, after visiting the Soviet Union during the 1920s, said “I have seen the future and it works.” The author of my college economics textbook, Paul A. Samuelson of M.I.T., had a chart projecting when the Soviet Union would catch up to us. He was as right about communism as Jonathan Gruber was about Obamacare.

For those who believe in socialism, the economy is nothing more than an engineering problem: how to achieve a particular goal with the means available. To them, scientific socialism would be like scientific management. Just like managers can organize work within a factory so as to increase efficiency, central planners can organize the entire economy. In this view, people are mere “human resources,” no different from bales of hay at a warehouse. What manager would worry about where a bale of hay wants to be? If it’s more efficient to move a bale of hay from Point A to Point B, you don’t ask the bale of hay if it’s o.k.

While efficiency in achieving particular goals is part of the economy, there is another part called entrepreneurship. Entrepreneurship involves thinking outside the box. Invention. Innovation. Being creative. Consider finding a job. We, each of us, are like jig saw pieces with some ability to adapt ourselves to the holes that we find in the jig saw puzzle that is the labor market. This jig saw puzzle is huge, today, the size of the world; and, it’s constantly changing.

Turning to China, when it was being run by Mao Zedung, it was a lunatic asylum of craziness. With the Great Leap Forward and the Cultural Revolution, he unleashed destructive forces that reduced the standard of living to the subsistence level or lower for those who survived, and millions upon millions did not survive. Fortunately, the madness came to an end with Deng Xiaoping in 1979. Deng introduced many economic reforms.

From 1955 to 1975, China averaged about 4 on the Cato Institute’s index of economic freedom. The U.S., for a comparison, is about 8. The figure for China indicates that it had been a centrally-planned economy. From 1980 to 2000, China moved to a score of about 6, meaning it moved to a mixed economy. Something between a centrally-planned economy and a market-oriented economy.

The writer for the Daily Caller says that China – which he calls a socialist economy - has outperformed India – which he calls a capitalist economy. India has been a democracy and China is an authoritarian country. But, in terms of economic policies, India hasn’t been much different from China. India’s score on the economic freedom index during the 1950s and ‘60s was about 5, only a bit higher than China’s score back then. India fell to a score of about 4 during the 1970s. India’s poor economic performance during its first several decades of independence proves democracy doesn’t guarantee that socialism will work.

Since the 1970s, India, like China, moved to a mixed economy. India, like China, has been registering about 6 on the index of economic freedom since the 1990s. During these past several decades, India’s rate of growth has accelerated and is now faster than China’s.

I will conclude with a few comments on the doctrine of forced savings. One of the advantages of authoritarian countries, supposedly, is forced savings. An authoritarian country can short-change workers, and use that savings to promote economic growth. This really has nothing to do with socialism. A slave-owner enjoys the surplus product of his slaves, and a king can impress his subjects into work gangs. And, consider a country that is both democratic and socialistic.

In a country that is both democratic and socialistic, we might suspect that crafty politicians will run for office by promising more and more free stuff. The increasing bribes offered by Nicolás Maduro to the urban poor of Venezuela endeared him with enough voters to enable him to win one after another election. But, the cost of the bribes eventually bankrupted the country. In a market-oriented economy, people must, at the individual level, balance the benefit of more stuff against the cost of work. But, in a democratic socialist country, greed can combine with laziness to bankrupt even an oil-rich nation.